Options Trading Tutorial

Is option trading a good investment right now?

I have a friend who's uncle use to be an option trader for a hedge fund who's starting an investment club. He claims he can get a return of at 300% in the first year. I think it's way to good to be true but someone told me that options can really make that kind of return. Is this true? Would investing be a smart move?

Public Comments

1. if you don't know how to trade options then no. If you do then yes. Options let you pick the price you are willing to pay for a stock. So if you say you will pay $10 and the price goes to $100 then you can pay $10. But you have to be able to predict the way the price will go.
2. It's possible to make that kind of money. But I wouldn't trust someone who probably lost a lot of money at a Hedge Fund. His Hedge Fund probably didn't do so well. And that's why now he is looking for other investors to give him money to play with. Right now stock options are very expensive due to volatility. And now is not a good time to start buying options. Perhaps selling options can be profitable. But selling of options can carry unlimited risk where you can loose more money than you've invested. Trusting someone else to manage your money is risky. Because no one cares about your money as much as you do.
3. When a distant acquaintance starts offering great returns like 300% a year, it is almost always a scam. They will claim they are great currency traders, or real estate investors, or snake oil sellers, and then they take your money and run. There are rare people who make money on options, but most people lose money on them. Stay away. Better yet, call the Securities and Exchange Commission and report him. He is probably not an options trader and can be arrested for fraud. If he doesn't give you a prospectus and invests money for you, he is also committing an illegal act.